LIVE MARKETS-Barclays recommends long 5-year US Treasuries

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BARCLAYS RECOMMENDS LONG 5-YEAR US TREASURIES

U.S. Treasuries suffered the biggest selloff in decades last week, with analysts pointing to a rise in term premium as one of the factors that triggered such a move.

While analysts agree that foreign demand has kept the U.S. term premium lower – and will probably continue to do so – last week's move required more than just a repricing of the additional yield investors demand for holding longer-term bonds.

Analysts said hedge funds and other asset managers offloaded bonds, after receiving margin calls and posting sharp losses from market volatility.

"We believe concerns about foreign demand slowing over the medium term are indeed valid, but should be balanced with downside cyclical risks," Barclays analysts said, after recommending re​-​initiating a long position in 5-year U.S. Treasuries.

"Should the economy weaken more aggressively than currently anticipated, there is far more room for yields to decline."

"A medium-term real rate of 2% looks high even for an economy which is growing solidly, let alone one which faces recession risk in the near term and low potential growth in the medium term due to reduced immigration," Barclays analysts add.

"The growth outlook has worsened with a high probability of a recession. Meanwhile, 5-year Secured Overnight Financing Rate (SOFR) is now roughly the same as a month ago," they argue.

SOFR is a benchmark rate that measures the cost of borrowing cash overnight, collateralised by U.S. Treasury securities.

(Stefano Rebaudo)

EARLIER LIVE MARKETS POSTS

BOUNCING BACK CLICK HERE

EUROPE BEFORE THE BELL: LVMH EARNINGS WREST FOCUS FROM TARIFFS CLICK HERE

MORNING BID: TAXES AND TARIFFS ON THE MIND AS RELIEF RALLY LIMPS ALONG: CLICK HERE